Will Germany Continue to Prop up Iran's Financial Terror Entities?

Angela Merkel has a choice.

Benjamin Weinthal

July 21, 2010 5:42 PM

The European Union is slated this week to wrap up a new round of sanctions. Their goal is to force Iran to suspend its illicit nuclear program. After years of inaction, the European Union is now amenable to inflicting real economic pain on the Iranian regime where it is most vulnerable – particularly, to Iran’s financial and energy sectors. Disturbingly, Germany, the key EU economic force trading with Iran (roughly 4 billion euros annually), has thus far thrown a wrench into the works by blocking sanctions against Iranian banking institutions who are involved in financing its nuclear weapons program on German soil. In short, Germany is the key to effective EU sanctions against Iran's rulers.

The Wall Street Journal reported on Monday that the Hamburg-based Iranian EIH bank “has done over a billion dollars of business for Iranian companies associated with Iran's conventional military and ballistic missile procurement programs.” That should serve as a powerful wake up call for Germany to drop its resistance to shutting down the four Iranian banks operating in Germany. Statements from Germany's finance ministry and its bank regulatory agency BaFin suggest that the authorities are doing their best not to draw much undue attention to Germany's role in financing Iran's nuclear program and simply want to contain the damage.

A spokesman for BaFin said on Monday that there is no knowledge of violations of UN sanctions and therefore no reason to ban the EIH. Michael Offer, a spokesman for the finance ministry, which oversees BaFin, said, "I can say that, so far, the bank oversight authority has no information about violations ... but that BaFin and the Bundesbank are investigating all of these allegations.”

These bank allegations, however, do not stand-alone; rather, it all very neatly fits into a pattern of aiding and abetting the mullahs. In 2008, the German Federal Office of Economics and Export Control (BAFA) gave the green light to an over 100 million euro deal that permitted the German engineering firm Steiner Prematechnik Gastec to build Iran three plants for converting natural gas to liquid fuel. This occurred in direct defiance of Germany’s allies – it was at a time when former British Prime Minister Gordon Brown and then U.S. President George Bush sought to clamp down on Iran's liquefied gas sector.

As with the EIH bank, the foreign press blew the whistle on the gas deal, prompting an embarrassed Chancellor Angela Merkel to utter half-hearted words of disapproval about her Economics Ministry. Nonetheless, her administration did not block the deal and she implemented a paper tiger “discouragement” policy to reduce trade with Iran. German companies ignored the non-enforceable policy and, predictably, the result turned out to be increased trade with the Islamic Republic in 2009. The relative indifference of the political echelon to the gas deal and Germany's Western allies, including Israel, was the political consequence of this 2008 scandal.

In 2008, however, the EU banned the Iranian bank Melli. While Germany agreed to the prohibition of Melli, the former grand coalition of Social Democrats and Chancellor Merkel's conservatives successfully impeded pulling the plug on Iran's Bank Saderat , which has offices in Hamburg and Frankfurt, and Bank Sepah in Frankfurt. This resulted in Melli's transactions being easily absorbed by branches of other Iranian banks in Germany. The Iranian shell game—with a wink of approval from the German authorities—continued in the financial sector.

Stuart A. Levey, the then-under secretary of the Treasury, in a whirlwind tour of Germany's financial institutions in 2007 was able to twist the arms of recalcitrant banks, such as Deutsche Bank, Commerzbank , and the former Dresdner Bank, to pull out of Iran business or face an economic beating in the United States. Much to the disappointment of those urging Germany before Levey's visit to voluntarily take the high road, and end its alliance with Iran, in the end, it took external pressure to alter Germany's behavior.

After years of deceptive Iranian financial practices, Germany must now recognize that combined pressure from a unified Europe could complement the robust U.S. sanctions and ratchet up the pressure on the mullahs.

The U.S. Treasury department, for its part, outlawed trade with EIH, Bank Sepah, and Saderat because of their connections to terror activities and nuclear proliferation.

Chancellor Merkel has an amazing chance to join the ranks of its fellow EU countries and the United States in turning the economic screws on Iran, and show the international community that Iran's renegade behavior will not be accepted. Will Germany, once again, employ smoke and mirror tactics to placate the United States, France, the United Kingdom, and Israel? Or will Germany seize the opportunity to make a clean break with from the Islamist regime that mocks Germany and its partners as “idiots,” as the defiant Iranian president Mahmoud Ahmadinejad said on Monday?

Benjamin Weinthal is a journalist based in Berlin and a fellow at the Iran Energy Project at the Foundation for Defense of Democracies.